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If you have read any literature on retirement planning or have received advice from a financial professional, chances are you were presented with the 70% rule, the one that suggests that retirees will need between 70 and 80% of their pre-retirement income in order to maintain their standard of living. There are several flaws with this formula, the least of which is that it doesn’t consider your actual income and expenses at the time of retirement. Retirement income planning needs to be grounded in today’s realities and it must anticipate the cost of aging, not just the cost of inflation. It also must be based on the practical expectation that you will only be able to save as much as you are able to sacrifice while you are working. More planners are applying the concept of “consumption smoothing” that combines an attitude about current spending and lifestyle needs with a vision of the same in retirement. The concept seeks to “smooth” out your consumption over your working and retirement years so there is less of a discernible drop in your standard of living. Essentially, it is a part of the retirement planning process that is designed to gradually prepare for the transition by moderating spending over time, and increasing savings proportionately. Certainly, life events, such as children leaving the nest, or eliminating the mortgage, will allow for major adjustments in consumption. But, the process is helped, and even accelerated, when additional consumption smoothing is applied through a moderation of lifestyle.

One of the principal tenets of investing is that no one single investment is right for everyone. Every investment has certain characteristics, risks, and objectives that must match those of the investor, and fixed annuities are no different. Although fixed annuities have become more popular in light of the recent financial turmoil and the carnage it has left behind in retirement accounts, investors should still take care in considering whether they are best suited for them. As economic uncertainty increases, concerns over financial security mounts causing people to look for alternatives that provide more guarantees and predictability. Currently, more than 50% of pre-retirees fear that their assets won’t generate the income they need for their lifetime. Because fixed annuities protect principle while providing a guaranteed income that can’t be outlived, investors are looking to them for at least a portion of their retirement portfolio. Before expending the time and effort exploring specific fixed annuity products, you should assess your own situation to determine if the benefits of fixed annuities can meet your particular needs. Here are five questions you should ask regarding their situation before considering fixed annuities: Am I contributing the maximum amount to my retirement account? Fixed annuities do offer the advantage of deferring taxes on earnings until they are received, just as qualified retirement plans, however, contributions to fixed annuities are not tax deductible. As a general rule, you should take every advantage of using you before tax dollars to save for retirement before considering other investments.